You can build business credit through everyday expenses if you know how. Learn more here.
Can Business Expenses Be Used To Improve My Company’s Credit History?
Whether your business is new or well-established, you can turn business expenses into credit-building opportunities in three ways:
1. Business credit and charge cards
You can use business credit or charge cards to buy items your business needs. As long as the card reports to major business credit bureaus and you pay on time, you’ll be adding positive references to your business credit history.
2. Net-30 vendors
Another way to establish your business credit file is by purchasing items your business needs, like office supplies, using vendor accounts. Many suppliers offer payment terms (such as net-30 or net-60, meaning payments are due in 30 or 60 days). If the vendor reports to business credit agencies and you pay on time, you can add a tradeline reference to your business credit report.
3. Direct expense reporting
You may be able to have accounts you already pay for, such as business utilities or rent, reported to certain business credit bureaus through a service like this one.
What Are the Best Business Expenses To Put on a Credit Card To Help Build My Business Credit History?
Almost any business expense can be put on your business credit card or charge card as long as the vendor accepts credit cards.If you carry a balance, you’ll likely pay interest, so new purchases may also start incurring interest immediately. Be cautious with new purchases to avoid extra costs from interest charges.Paying in full and avoiding interest charges can be an effective and low-cost way to build credit.
Why Is Business Credit Important?
Access to better loan rates and terms
Creditworthiness is important for most companies offering small business financing. Lenders may check your business credit, personal credit, or both when considering your loan application. SBA loans, for example, require “acceptable credit,” and some lenders use the FICO SBSS score to evaluate business credit.Good business credit doesn’t guarantee loan approval, but it can offer more options, lower interest rates, and/or higher credit limits.
Better terms with suppliers and vendors
Good credit can help you secure better payment terms with vendors, like net-30, net-60, or even longer terms, which can improve your business’s cash flow.
Lower insurance costs
Business credit may be checked when applying for business insurance. Good credit can help your business get better terms.
Growth opportunities
Potential business partners, investors, buyers, and others may check your business credit. A solid business credit profile can make your business more attractive to those looking to invest or partner with you.
How Do I Build My Credit History if I Have None?
If you’re unsure how to establish business credit, here’s how to start.
1. Build Your Foundation
To establish business credit, create a professional image for your business. If your business is new, make sure you have a business phone number listed in directory assistance, a professional email address, and a website. Get an Employer Identification Number (EIN) from the IRS if you don’t have one already.Basic information about your business may appear on your business credit reports, and lenders will want to confirm that your business is legitimate.
2. Make it official
Register your business with your state. If you’ve formed an LLC or corporation, this step is covered. Annual filings are typically required. If your business is formed in a different state, you might need to register it as a foreign corporation where you operate.For sole proprietorships or independent contractors without a formal business structure, file a fictitious business name with your state, also known as a “DBA.”Ensure you obtain any necessary professional or business licenses required by your state.Public records like these can be used by credit agencies to start your business credit profile.
3. Get a D-U-N-S Number
A DUNS number is your business identifier with Dun & Bradstreet (D&B). If you don’t have one, request it. While Creditsafe, Equifax, and Experian create their own identifiers, you don’t request those.This makes your business visible to Dun & Bradstreet.
4. Get Tradelines That Report to Business Credit Agencies
A crucial part of any credit report is your payment history. Past payment behavior predicts future payment behavior. It’s important to have accounts that report to business credit bureaus, as not all do. Aim to establish at least two to three credit accounts with companies that report, more as your business grows.
Business credit cards: Most business credit card issuers report to one or more major business credit bureaus. On-time payments and low balances help build credit. Keeping credit utilization low (30% or less) is recommended.
Business loans and financing: Small business loans and other financing options, like term loans and business lines of credit, often report to credit agencies. Larger loans with timely payments can significantly boost your credit history.Without accounts with a solid payment history, you’ll have a thin file or no business credit report and/or a low credit score.
5. Open a business credit card
A business credit card that reports to major credit reporting agencies can help build credit. These cards can help establish credit when paid on time.Most small business credit card issuers consider the owner’s personal credit scores and income when evaluating applications, making them accessible to both startups and established businesses.Having at least one business credit card is beneficial, and having more can increase your credit limit and cash flow. However, avoid overextending your business and accumulating debt you can’t repay, as it will damage your business credit scores.If you don’t qualify for a business credit card or want to avoid debt, consider a business charge card that requires full payment each month.Business credit cards and charge cards help establish credit when paid on time and debt remains low.
6. Pay on time
Paying on time is crucial for building strong business credit.Payment history is the most important factor in any credit score, especially for business credit. Business credit reports often use “Days Beyond Terms” (DBT) to describe late payments. Even being a day or two late can affect your score.A positive payment history is key to building your business credit scores quickly.
7. Monitor your credit
Regularly monitoring your business credit history helps track your progress and spot errors. If you find a mistake, dispute it with the reporting credit bureau.Check your business credit reports and scores with multiple major credit reporting agencies since they don’t share information with each other.Monitoring your business credit helps identify and resolve issues early.
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